The Most Controversial Thing I Tell People About Successful Investing
This might be the most unpopular thing I tell people about investing. It doesn’t win me a lot of friends by saying it, but it’s true.
A good stock pick really isn’t that hard to find. In fact, sometimes it’s stupidly simple.
You heard me right…
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The fact of the matter is we just tend to make investing too damn complicated. We overthink. We overanalyze. We worry too much over what we can’t control. We try to time everything just perfectly.
Therein lies the rub. We’re our own worst enemy. If we can just manage to take a step back and remember what actually makes a good investment, it’s really not that hard to find a good stock.
To see what I mean, let’s do a little mental exercise…
What if I told you that the S&P 500 is up by about 3.5% over the past year?
Now pretend you don’t follow the daily gyrations of the market as closely as you likely do, which is probably too much. You’d probably assume not much of anything has happened, right? The yearly chart tells a different story…
Now, here’s where I’m going with this… How much have you worried about the market over the past year?
How much have you tried to analyze the implications of the trade war… the Fed… unemployment numbers… how much President Trump is going to either save or crash the market? You name it…
Now, was it worth it? I’ll answer that for you: it wasn’t.
All of that worry about the “macro” picture for 3.5%. Seriously.
#-ad_banner-#Look, the studies agree with me on this — most of you would be better off just parking your cash in a Vanguard fund and moving on with your life. Because the average individual investor doesn’t even beat the market. We’ve covered some of the reasons for this before (poor discipline, poor timing, etc.), but another reason is we tend to think we’re smarter than we really are. In reality, we only have so much mental bandwidth.
I know that might come off as a little insulting. (Trust me, that’s not my intent.) But part of my job is to make you a better investor. And sometimes that means saying things that would get me smacked out in public.
My point is you’re far better off spending your time and energy looking for killer stocks… the easy wins… the ones that will deliver consistently, year after year… the ones that are going to make you rich.
And they’re really not that hard to find.
The Easiest 50% Gain You’ll Ever Hear About
To prove it, I’m going to show you how you could have made nearly 50% in the past year from one of the most boring, reliable, well-known brands on the planet.
It didn’t take a genius to spot it, either.
You’ve heard us talk about how a well-run “Buffett-like” company can produce excellent returns over the long run… Well, what I’m about to show you is a perfect example of how investing in a well-run company can produce market-beating returns in as little as one year.
See, the beauty of investing in companies that consistently manage their capital and easily generate free cash flow without extensive capital investments into their business is that they are predictable. You know exactly what you’re getting.
And if you want, you could hold on to them “forever.”
The problem is that these slower-growing companies aren’t considered “sexy.” They aren’t splicing genetic material or creating the next great app that will keep us glued to our smartphones for hours on end.
Consider The Hershey Company (NYSE: HSY), a portfolio holding over at Top Stock Advisor.
This is a company whose leading product has been around, unchanged, for more than 120 years. The Hershey bar is practically as iconic as a bottle of Coca-Cola (the chocolate bars have been distributed as rations and morale boosters for U.S. troops since 1937 for crying out loud).
It’s paid a dividend for more than 359 consecutive quarters — or more than 89 years. And with the exception of 2009, it has raised its dividend every year since 1974.
Founded in 1894 by Milton Hershey, company sells and distributes products under more than 80 brand names in roughly 70 countries worldwide. The company dominates most of the markets where it operates, in terms of market share.
Here’s a graphic Chief Strategist Jimmy Butts shared with his Top Stock Advisor subscribers back when he added the stock back in October of last year. Note slow, steady (and staggering) growth over time.
Every single one of those metrics was higher in 2018. Net sales of $7.79 billion were roughly 3% higher. Earnings per share: $5.78. Operating margin: 22%. Free cash flow: $1.08 billion. Dividends: with the latest hike, HSY will pay $3.09 a year.
Remember, this isn’t an explosive-growth company. But it operates with ruthless efficiency.
This goes to show that by a well-run company like Hershey doesn’t have to grow sales by double digits year after year to deliver impressive returns to shareholders. Hershey’s business model doesn’t require massive increases in sales each year, because it doesn’t require massive amounts of capital to be reinvested back into the company. That leaves more money that’s available to return to shareholders, as sales and profits grow.
When Jimmy Butts and his subscribers added the stock back in October of last year, they knew exactly what they were getting. And they’ve been rewarded with a nearly-50% gain for their wisdom.
As Jimmy rightly pointed out, sure, people are becoming more conscious about what they eat… But chocolate isn’t going away anytime soon.
And while most investors were trying to read the market’s tea leaves (and were lucky to get just shy of 4% for their trouble), Jimmy and his followers owned one of the easiest businesses in the world to understand and blew the rest of us out of the water.
Kudos are in order, to be sure. But remember, this is what we should all be spending our time on… looking for investments that look exactly like this.
As I said before, finding a good stock pick really isn’t that hard. In fact, it can be ridiculously simple.
Note: Here’s another smart, easy way to make a killing in the market: tap into unstoppable “mega-trends” that will unfold regardless of public policy fights, changing political winds, or economic cycles. One of these trends is the global roll-out of 5G, the next generation of wireless technology.
The companies involved in developing and deploying 5G will richly reward investors who act early. For our latest report on the 5G megatrend, click here.